Business Context and Reporting Period
Company: Evercore Partners Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2009
Business Overview: Evercore is an investment banking firm organized into two primary segments: Advisory (M&A, restructuring, corporate finance) and Investment Management (Private Equity, Institutional Asset Management, Wealth Management). The company operates globally with significant presence in the U.S., Mexico, and Europe.
Key Financial Metrics
| Metric (in thousands) | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Revenues | $58,217 | $50,480 |
| Net Revenues (Total Rev - Interest Expense) | $49,726 | $44,488 |
| Net Income (Loss) | $397 | $(2,308) |
| Net Income Attributable to Evercore Partners Inc. | $191 | $(965) |
| Diluted EPS | $0.01 | $(0.08) |
| Cash and Cash Equivalents (End of Period) | $117,497 | $124,569 |
| Total Assets | $742,435 | $667,880 |
| Total Liabilities | $511,305 | $507,355 |
| Notes Payable (Senior Notes) | $95,591 | $95,263 |
Operating Cash Flow: Net cash used in operating activities was $51.7 million for Q1 2009, primarily driven by the payment of 2008 bonus awards.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 15% year-over-year, driven by a 21% increase in Advisory Revenue ($49.1M vs $40.7M). This growth occurred despite a decline in global M&A deal volume, attributed to Evercore's participation in larger transactions.
- Investment Management Decline: Investment Management revenue plummeted 78% to $0.6M from $2.6M. This was caused by valuation losses in private equity funds, a reversal of carried interest, and a $0.9M loss from the HighView investment.
- Expense Increases: Total operating expenses rose 25% to $47.5M. Employee compensation increased 39% due to higher discretionary compensation and increased headcount (355 employees in 2009 vs 294 in 2008).
- Turnaround to Profitability: The company reported a net income of $0.4M compared to a net loss of $2.3M in the prior year, largely due to the reduction of "Other Expenses" (which dropped 92% from $9.1M to $0.8M) and improved Advisory performance.
- Interest Expense: Interest expense increased 42% to $8.5M, reflecting the impact of Senior Notes issued in August 2008.
Guidance, Outlook, and Risks
- Subsequent Charges: Management expects to record a pre-tax charge of approximately $19.9 million in Q2 2009 related to the decision to delay capital raising for Evercore Capital Partners and strategic cost management initiatives. This includes the voluntary forfeiture of approximately 760,000 unvested restricted stock and LP units by employees.
- Capital Raising: Capital raising for Evercore Capital Partners has been delayed due to significant dislocations in alternative investment markets. The company is focusing on managing and realizing value from the existing portfolio.
- Acquisition Activity: On April 29, 2009, Evercore announced the acquisition of Bank of America's Special Fiduciary Services Division for $8.2M, forming Evercore Trust Company, N.A. (ETC).
- Liquidity: Cash and cash equivalents decreased by $58.4M during the quarter. The company maintains a $25M share repurchase program, under which $0.6M was spent in Q1 2009.
- Risks: The company faces risks related to global financial market volatility, credit market illiquidity, and the potential inability to scale costs quickly enough to match revenue declines. Regulatory compliance with the Office of the Comptroller of the Currency (OCC) regarding the new trust subsidiary is also a key focus.
Investor Verification Checklist
- Q2 Charge Impact: Verify the timing and specific composition of the expected $19.9M pre-tax charge in Q2 2009 and its impact on full-year earnings guidance.
- Advisory Sustainability: Assess whether the 21% revenue growth in the Advisory segment is sustainable given the reported 42% decline in global M&A deal value.
- Investment Management Turnaround: Monitor the performance of the Investment Management segment, specifically the reversal of carried interest and the status of the HighView investment write-off.
- Liquidity Position: Review the cash burn rate relative to the $117.5M cash balance and the $16.7M in unfunded capital commitments to private equity funds.
- Senior Notes: Confirm the ongoing impact of the $120M Senior Notes (5.20% coupon, 7.94% effective yield) on net interest margins and future cash flow requirements.